Lesser duty rule: Bane of the Indian Industry

Author: Aastha Gupta, Joint Partner

India has been following the lesser duty rule in its anti-dumping investigations, which means that duty is
imposed to the extent of dumping margin or injury margin, whichever is lower. While the lesser duty
rule had been introduced to ensure that the interests of the users and protected and exorbitant duties
are not imposed on imposed. However, over time, it has turned into a menace for the Indian industry, as
it often leads to the entire purpose of trade remedial investigations being defeated. This has led to the
domestic manufacturers calling for its removal of the lesser duty rule itself.

Failure of lesser duty rule to meet the desired objective

The primary reason why the domestic producers are calling for removal of lesser duty rule is the manner
in which rule has been followed in India. The injury margin under the present law is calculated as the
difference between the non-injurious price and the landed price. While theoretically, the non-injurious
price is supposed to be a fair selling price, at which there would be no injury to the domestic industry; it
is sometimes even lower than the cost of production of the product.

This is because an efficient cost is calculated based on certain assumptions. As per these assumptions, if
there is any change in consumption of raw materials, utilities and capacities over the period, such a
change is deemed to be an inefficiency of the domestic industry. However, the approach fails to take
into account practical realities such as changes of product mix, substitutability of raw materials,
fluctuating quality of raw materials and other bona fide variations. As a result, the costs are unduly
suppressed, and the resultant non-injurious price and injury margin are often insufficient to afford due
protection to the domestic industry. Another failure of the lesser duty rule was that the DGTR is often

to spend maximum effort and resources on the determination of non-injurious price, and the
determination of dumping takes the backseat.

However, the worst sufferers of the lesser duty rule are undeniably the small-scale producers. This is
because the calculation of non-injurious price requires detailed costing information, which the small-
scale producers often find difficult to compile. Therefore, the application of lesser duty rule resulted in
trade remedial measures being available only the large-scale producers, as they do not sufficient
expertise, resources and detailed records to provide the requisite information. The removal of lesser
duty rule is expected to bring much needed relief to the small-scale producers by ensuring trade
remedial measures remain accessible to all.

Removal of lesser duty rule in larger public interest

The removal of lesser duty would also help to ensure that India achieves its objectives under the Make-
in-India campaign of the Hon’ble Prime Minister. As the country goes through an economic slowdown,
the removal of lesser duty rule is expected to give a much-needed boost to the domestic manufacturing
sector. By discouraging unfair imports, it would also help reduce dependency on unnecessary imports,
bridge the trade deficit and ease the pressure on the foreign exchange. It would, therefore, be a step in
the right direction for the country as it looks to achieve the target of $5 trillion economy. Further, it would also promote investment in manufacturing sector in India. Contrary to the popular
belief, the removal of lesser duty rule would not increase the demand-supply gap in goods within the
country. Instead, protection from unfair imports

would encourage industry to undertake capacity additions. Therefore, the removal of lesser duty rule
would go a long way towards ensuring a vibrant manufacturing sector in India.

Keeping step with the changing global situation

While the Indian industry had been suffering from the adverse consequences of the lesser duty rule for
long, the call for removal thereof became stronger due to the changing regulations and practices in
global trade. While India applied lesser duty rule, other countries such as Canada, China and USA apply
duties to the full extent of dumping or subsidy margin. Further, other countries such as Australia,
Mexico and New Zealand applied the rule only selectively. Even European Union amended its law to
remove the provisions of lesser duty rule completely under subsidy law and for selective application in
anti-dumping law. However, even in cases where lesser duty rule is applied, it is followed in a more
liberal manner than it is done in India. Therefore, a need was felt for the law in India to be amended to
keep pace with the global practice.

Favorable times ahead

While the lesser duty rule has been a bane for the Indian industry, the situation is soon expected to
change for the good. Taking cognizance of the plight of the Indian industry, Shri Piyush Goyal, Hon’ble
Minister, Commerce and Industry, had announced in September, 2019 that the lesser duty rule would
be removed. It is, therefore, expected that the rule would be amended in the foreseeable future, to
allow much needed respite to the industry in India. However, it is imperative that the amendment
comes sooner rather than later, to prevent further unnecessary hardships to the domestic producers
due to unfair trade practices of the exporters.